Carving out a profit from cosmetic surgery

So much for growing old gracefully. These days, many people are trying to turn back the years with huge amounts of increasingly invasive cosmetic surgery. Only a decade ago, face lifts were something reserved for the occasional paranoid celebrity, but last year, says Susanna Twidale in Shares, Americans spent a "massive" $9.4bn on cosmetic surgery and non-surgical procedures. And in the UK, the market is already worth £225m and growing: last year, the number of procedures undertaken rose by 60% and a total of 15,019 women underwent surgery. The global breast-implant market, which was the first sector of the market to really kick off (even by 1990, more than one million women had had silicone implants), is now worth around $650m alone.

Is cosmetic surgery "a 21st-century form of sculpture, an insidious tool of homogenisation, a signifier of advanced social status, or simply a way of making your life better"? asks Wendy Lewis in The Sunday Times. Whatever the justification, it is becoming more and more socially acceptable for both men and women (even Cliff Richard has confessed to going under the knife to preserve his good looks) and the need to have it is spreading like a "virus", gaining momentum through recommendation and rumour, rather than direct marketing. Friends offer friends advice on who to go to, then compare pain levels and results.

Indeed, such is the fascination with plastic surgery that it has spawned its own subcultures: "the pornography of surgery television", such as Nip/Tuck, The Swan and Extreme Makeover, and a whole new universe of surgery-mimicking beauty products. Such is the extent of the boom and the benefits that cosmetic surgery is believed to bring that even traditionally poverty-stricken students are apparently resorting to surgery before starting university, says Sarah-Kate Templeton in The Sunday Times. In a bid to increase their self-esteem, and hence their ability to meet new friends and succeed in their studies, they are artificially plumping up their cheeks, enhancing their lips and reshaping their noses. Surgeons are also reporting a "booming" demand from female students for breast-enlargement procedures, despite their patchy safety record. These cost about £3,000 (coincidentally also the price of top-up fees from the start of the 2006 academic year).

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It isn't really our place in MoneyWeek to point to the absurdity of young people thinking that getting a different shaped nose will get them a better degree, or indeed to comment on the behaviour of surgeons who trade on the insecurities of teenagers so we'll stick with looking at the cosmetic surgery industry as an investment. With economies slowing around the world and inflation on the up, it currently makes sense to look to invest in fast-growing industries. And, as Susanna Twidale points out, there is no point in denying that the cosmetic-surgery industry is seeing extremely fast organic growth. There are also plenty of companies out there waiting to reap the rewards of our "pursuit of the body beautiful", many of which, given the growth rates of their sales, "stand a good chance of stockmarket success in the coming years".

Three firms that are looking good

California-based Allergan (AGN: NYSE) reported sales for Botox (which smooths out wrinkles) of $705m in 2004 up 25% on 2003. Many believe that in a few years' time, this figure will be well over $1bn, as this treatment is one of the best-known brands in the world, says Shares. The shares trade on a forward p/e of 26 times, but that may be justified if this kind of growth continues. Implements that can be used for cosmetic surgery are also a growing business. Gyrus Group (GYG), which supplies medical devices that reduce trauma and complications in surgery, started to get in on the act in 2001, when it bought Smith and Nephew's ear, nose and throat (ENT) division. Around a third of ENT procedures are in the cosmetic-surgery field, and the company's bloodless cutting and sealing technology is "ideal" for this type of operation. The ENT division represented around 44% of total revenues in 2004, bringing in £38.4m. The shares currently trade on a p/e of 22 times

Aim-listed Chromogenex (CGX) develops, designs and manufactures lasers to treat acne, psoriasis and vascular legions. Although its products are more necessity-based than breast implants, the acne market alone is worth around $5bn worldwide. The firm is not yet making money, but has plentyof potential.